The State of the Aviation Industry Post 9/11: The Boston Logan Experience

Mr. Thomas J. Kinton, Jr.Director of Aviation

MIT Symposium on Air TransportationMarch 2004

1

I. Boston Logan Context

Passengers 22.8MOperations 373K

60% Jet30% RJ10% Prop

O&D 90%Almost 60 Airlines

Served by all the Majors(except Southwest)

$6B/Yr. in Economic Benefits, Supporting 100,000 Local Jobs

Boston Logan International Airport (2003)

3

In 2002, Logan Was the 20th Busiest Airport in the U.S.

0 10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 60,000,000 70,000,000 80,000,000

New York La GuardiaBoston

CharlottePhiladelphia

St. LouisOrlando

Seattle/TacomaNew York Newark

New York J F KennedyMiami

San FranciscoDetroit

MinneapolisHouston

Las VegasPhoenixDenver

Dallas/Fort WorthLos Angeles

Chicago O'HareAtlanta

Local Connecting

Total Local and Connecting PassengersCY 2002

Source: ACI; Airport Records; Salomon Smith Barney 2002 Hub Fact Book; US DOT O&D Survey

123456789

101112131415161718192021

Rank

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BOS is the 12th Largest O&D Market in the United States, With Over 16 Million Domestic O&D Passengers

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

LAX LAS ORD ATL MCO PHX LGA DFW SEA DEN EWR BOS BWI FLL SFO SAN TPA DTW MSP PHL

Domestic O&D Passengers at Top 20 U.S. AirportsYE 2Q 2003

Source: US DOT, O&D Survey

5

A Key Strength of Boston is that it is Dependent on No Single Carrier

Carrier Share of Domestic Daily Departures at Selected Hub Airports January 2004

Source: OAG Schedule Tapes

36% 37%

49% 50%55% 58% 59% 60% 62%

64% 66%71% 72%

75%79% 79%

83% 84% 86%90%

27%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

BOS LGA LAX PHX ORD DEN SEA MIA STL SFO DFW EWR PHL IAD ATL DTW MSP PIT IAH CLT CVG

DLUS

CO

NW

AAUA

US

NW

UA

DLUA

USCO

UA

AAAA

AS

HPUA

USAA

6

Boston is also a Strong International Market (12th

Largest International Gateway in the U.S.)

Source: OAG Schedules

Weekly International Nonstop ServiceMarch 2004

SeatRank Gateway Dept's Seats Dept's Seats

1 Miami 1,333 208,578 10.9% 11.9%2 New York Kennedy 838 202,725 6.9% 11.5%3 Los Angeles 827 184,915 6.8% 10.5%4 Chicago O'Hare 716 120,539 5.9% 6.9%5 New York Newark 649 104,192 5.3% 5.9%6 San Francisco 352 82,916 2.9% 4.7%7 Houston Inter. 671 81,323 5.5% 4.6%8 Atlanta 535 80,863 4.4% 4.6%9 Dallas/Fort Worth 396 57,562 3.2% 3.3%

10 Washington Dulles 305 55,341 2.5% 3.1%11 Philadelphia 368 49,475 3.0% 2.8%12 Boston 333 44,699 2.7% 2.5%13 Detroit 262 39,283 2.1% 2.2%14 Fort Lauderdale 503 31,115 4.1% 1.8%15 Seattle/Tacoma 341 30,501 2.8% 1.7%16 Minneapolis 230 29,573 1.9% 1.7%17 Charlotte 181 23,289 1.5% 1.3%18 Orlando 132 21,708 1.1% 1.2%19 Phoenix 177 21,097 1.4% 1.2%20 New York La Guardia 231 20,189 1.9% 1.1%21 Denver 144 17,935 1.2% 1.0%22 Las Vegas 77 12,600 0.6% 0.7%23 Cincinnati 132 12,011 1.1% 0.7%24 Baltimore 71 8,159 0.6% 0.5%25 Pittsburgh 90 6,155 0.7% 0.4%

Total US 12,216 1,758,450 100.0% 100.0%

Percent of TotalWeekly

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The Boston Metro Region has a Highly Diversified Economy that is Travel Intensive

High TechnologyBiotechnologyHealth Care ServicesFinancial ServiceHigher EducationTourismAbout 55% Logan Trips are Business Related

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II. Impacts of 9/11 and Economic Downturn

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As a Result of 9/11 & the Economic Downturn, the Greater Boston Region has Lost Almost 5 Million Air Pax Trips

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

2000 2003

ManchesterProvidenceBoston Logan

(62,737,146)-13%744,838,287 852,347,154 Cargo(114,692)-24%373,304 487,996 Operations

(4,935,664)-18%22,791,169 27,726,833 Total PaxChange% Change20032000Logan

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Since 9/11, Boston Has Exhibited the 2nd Largest Decline in O&D Passengers of the Top 20 U.S. Airports

2.0%

-2.4%-3.7%

-4.9% -5.4% -5.9% -6.1% -6.4%

-8.8% -9.4% -9.9%-10.2%-11.8%-11.9%

-13.2%-13.6%

-16.0%-16.4%-18.2%

-29.7%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

FLL LAS DEN PHX SAN ORD TPA SEA BWI MCO PHL DFW MSP LGA DTW ATL EWR LAX BOS SFO

Change in Domestic O&D Passengers - Top 20 U.S. AirportsYE 2Q 2001 vs. YE 2Q 2003

Source: US DOT, O&D Survey

Average of Top 20 Airports:-10.5%

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Boston Traffic Declines Have Been Most Severe in Short Haul Markets Due to Air Carrier Cuts, Increase use of RJs, Diversion to Alternate Modes and Teleconferencing Technology

Source: US DOT, O&D Survey

-13.2%

-20.6%-24.3%

-43.5%-50%

-45%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%Under 250 Miles 250-500 Miles 500-1,000 Miles Over 1,000 Miles

Change in Boston Domestic O&D Passengers by Stage Length 2Q 2000 vs. 2Q 2003

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Reflecting Industry Actions to Cut Capacity, Aircraft Size and Load Factors Have Both Risen at Boston Logan

Source: OAG Schedule Tapes, USDOT T100 Databank.

Airline Operating Statistics at BostonCY 1998 – YE 3Q 2003

Load PassengersYear Factor Per Departure

1998 93 63.0% 591999 100 61.0% 612000 103 61.2% 632001 100 57.7% 582002 101 62.6% 632003 101 66.3% 67

SeatsPer Departure

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Reasons for the Disproportionate Drop in Boston Logan Traffic

Economy/Industry Already Weak Before 9/11Airline Cuts in CapacityEconomic Downturn

Two sectors hardest hit are critical to the local economy (High Tech and Financial Services)

Business Travel Disproportionate Share Minimum Low Cost Carrier PresenceOngoing Construction

Big DigLogan Modernization

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Recent Passenger Traffic Data Suggests Logan is Beginning to Rebound

Last Six Months (Sept-Feb) + 6.7% Last Quarter 2003 + 4.5%January 2004 + 8.5%February 2004 + 14.4% (Estimate net extra day & patriots)

Change from Previous Year

The Economy is ImprovingIncrease Presence of Low Cost CarriersDramatically Improved Access to LoganNew Airport Facilities Improving Customer Experience

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III. Boston Logan Priorities for the Future

Continue to Enhance SecurityComplete Logan Capital ProgramRespond to Evolving Air Carrier Business Models (Legacy and Low Cost Carriers)Reduce Operating Costs and Increase Alternative Sources of RevenuesFocus on Customer Service

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Re-Inventing Security

$146 Million in-line baggage screeningTSA StaffingNew TechnologySecurity PerimeterScreening CargoBPR Training

17

Over $4 billion in Private/Public Investments Underway

Upgrade and Expand International TerminalDelta New Terminal AUS Airways Terminal BExpansion of Central GarageNew WalkwaysNew HotelNew Roadways/TunnelNew Fuel Distribution System/Other UtilitiesAirfield Improvements

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Low Cost Carriers jetBlue and America West Have Substantially Increased the Low-Fare Presence at Boston

4,4383,800

2,740

8,132

3,6993,032

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

BOS PVD MHT

Mar-03 Mar-04

Daily Low-Fare Carrier CapacityMarch 2003 vs. March 2004

Source: OAG Schedules

Boston Now Has More Low-Fare Seats Than Providence and Manchester Combined

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Boston Continues to be Well Positioned for Significant Low-Fare Carrier Growth

Large Local MarketBelow Average Low-Fare PresenceNo One Carrier Dominates the Boston MarketAvailable Facilities in the Near FutureThe Absence of Southwest Airlines Makes Boston More Attractive to Other Major Low-Fare Carriers

Regional Jet Traffic has Increased from 13,000 Flights Annually in 1999 to Almost 100,000 Flights Today

Boston Logan Regional Jet Flights1999 - 2003

0

20,000

40,000

60,000

80,000

100,000

1999 2000 2001 2002

Source: ACAS Fleet Database.

Challenge of Managing Regional Jet Usage…

Discourage Discourage EncourageEncourage

New domestic pointNew domestic point--toto--point services point services Customer ServiceCustomer ServiceFeeder ServiceFeeder ServiceCompetitive Entry toCompetitive Entry to

Decreased FaresDecreased FaresIncreased FrequencyIncreased Frequency

OffOff--Peak SchedulingPeak SchedulingNew RJ Service at New RJ Service at Regional AirportsRegional Airports

Additional Inefficient Additional Inefficient Flights to Already Flights to Already Congested HubsCongested HubsRepetitive Service from Repetitive Service from Regional AirportsRegional AirportsScheduling of Commuter Scheduling of Commuter Aircraft Conflicting with Aircraft Conflicting with Mainline ServiceMainline ServiceStress on Local FacilitiesStress on Local Facilities

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IV. Industry Trends and Boston Logan Airport

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Near Term Uncertainties versus Long Term Fundamentals

Economic RecoveryLower FaresRebound of Legacy CarriersContinued Growth of Low Cost CarriersEnhanced Customer Service

Uncertainty of Economic RecoverySecurity CostsWar/Terrorist Threats

Domestic & InternationalAirline Consolidation and Bankruptcies

Long TermShort Term

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The Future at Logan

The network carriers continue to struggleOne (or more) major carrier may fail

A major carrier failure would produce some shrinkage in seat capacity, both nationally and at BostonStrong growth by low-fare carriers will continue at Boston

Potential to increase from 14% of domestic pax traffic to over 30% (consistent with national trend)

Boston’s network carriers will respond aggressively, and both capacity increases and reduced fares are expected

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The Future at Logan, Cont’d.

Expect further growth in Transatlantic services and new participation in the Asian and Latin American marketsCompletion of capital investment program will make Logan a dependable, customer friendly airport

Improved AccessNew Facilities (Terminals, Garage, Roadways)Airfield Improvements

Improvements in security procedures and new technologies will reduce security processing

Risk of under-funding TSA

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The Future at Logan, Cont’d.

Increase use of regional jets and more point to point service will stress airfield facilities and airspaceCost of environmental impacts will re-surface

Air Quality (NOx)Noise (Stage 4)

Implement flexible management tools to direct highest and best use of airport facilities

Demand ManagementSecurity responsibility and checkpoint staffingGate use requirementsAirfield Apron utilization

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The Future at Logan, Cont’d.

Keep airport competitiveContinue to focus on customer serviceExpand alternative sources of revenuesControl operating and capital costsMaintain first class facilities

With ever thinner margins, air carriers are demanding that airports reduce costsAir travelers are demanding better/low cost service from air carriers and airports

Choices of airports and alternative modes

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